international business transactions · chapter 1 · introduction 3 i. international business 3 ......

International Business Transactions

A Context and Practice Casebook

Amy Deen WestbrookKurt M. Sager Memorial Distinguished Professor of

International and Commercial Law Director of the Business and Transactional Law Center

Washburn University School of Law

Carolina Academic PressDurham, North Carolina

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Copyright © 2014Amy Deen WestbrookAll Rights Reserved

ISBN 978-1-59460-824-7LCCN 2013939892

Carolina Academic Press700 Kent StreetDurham, North Carolina 27701Telephone (919) 489-7486Fax (919) 493-5668www.cap-press.com

Printed in the United States of America

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Contents

Table of Cases xxiiiSeries Editor’s Preface xxvPreface and Acknowledgments xxvii

Chapter 1 · Introduction 3I. International Business 3

A. What Is International Business? 3Exercise: Who Owns This? 4

B. How Are International Business Transactions Different? 4Exercise: Karl’s Kitchenware 4Exercise: Karl’s Kitchenware, Part II 5

C. Sources of Law: The Legal Framework for International Business 5D. Your Role as Counsel 6

II. Globalization 6A. What Is Globalization, and How Global Is It? 7

IMF Staff, Globalization: A Brief Overview (2008) 7Exercise: Defining Globalization 9

B. The Globalization Debate 10Exercise: Analyze the Policy Arguments 10IMF Staff, Globalization: A Brief Overview (2008) 10Joseph Stiglitz, Globalization and Its Discontents (2002) 11Exercise: Whose Globalization? 16Exercise: Siemens 17Exercise: Globalization Policy Arguments 17

Chapter 2 · International Trade History and Economics 19I. International Trade History 19

A. Introduction 191. How and Why Did We Get Here? 19Exercise: Peterstan Opens to International Trade 192. Is International Trade “Good” or “Bad”? 20

II. Classic Economic Arguments 20A. Mercantilism 20

Exercise: Understanding Mercantilism 20Laura LaHaye, “Mercantilism,” The Concise Encyclopedia of

Economics (2012) 21B. Specialization and the Division of Labor: Adam Smith 22

Exercise: Adam Smith 23C. Comparative Advantage: From David Ricardo to Professional Sports 24

1. David Ricardo’s Theory of Comparative Advantage 24Douglas A. Irwin, Free Trade under Fire (3rd ed., 2009) 24

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Exercise: Ricardo’s Comparative Advantage Example — Cloth and Wine 25

Exercise: Another Comparative Advantage Example with Shoes and Fabric 26

2. Comparative Advantage in Sports 26Exercise: Babe Ruth 26Exercise: Should the Senior Partner Make His Own Photocopies? 27Exercise: The Policy Implications of Comparative Advantage 273. What Is the Catch? 27Exercise: Critical Thinking about Comparative Advantage 28Exercise: Looking Ahead — Free Trade vs. Protectionism 28

III. Historical Background 28A. Pre-World War II 28

Robert Hudec, The GATT Legal System and World Trade Diplomacy (1990) 29

Exercise: What Did Smoot-Hawley Do? 31B. Post-War Institution Building 31

1. The Post-War Environment and the Birth of the GATT 31Andreas F. Lowenfeld, International Economic Law (2nd ed., 2008) 312. The United Nations 34The United Nations, The History of the UN 343. The IMF and the World Bank 35The IMF, IMF Fact Sheet: The IMF and the World Bank

(March 29, 2011) 35The IMF, IMF Factsheet: The IMF at Glance (August 22, 2012) 36David D. Driscoll, The IMF and the World Bank — How Do

They Differ? (1996) 37Exercise: The IMF and the World Bank 42

C. The General Agreement on Tariffs and Trade 42Exercise: Understanding Bretton Woods 44

D. The GATT Evolves 44Robert E. Hudec, The GATT Legal System and World Trade

Diplomacy (2d ed., 1990) 44Exercise: The GATT 46

E. The Uruguay Round and the World Trade Organization 471. The Establishment of the World Trade Organization 47Ernst-Ulrich Petersmann, International Trade Law and the

GATT/WTO Dispute Settlement System 1948–1996: An Introduction, 12 ed. (1997) 47

Exercise: The WTO Agreement 49F. The Doha Development Agenda 50

1. Launching the Round (and Admitting China) 50Exercise: Chinese Accession to the WTO 50World Trade Organization, WTO Successfully Concludes

Negotiations on China’s Entry (September 17, 2001) 50Exercise: WTO Accession 532. Russian Accession 54Exercise: Peterstan WTO Accession 543. The Challenges for the WTO 55Exercise: The Future of the WTO 55

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Roderick Abbott, “The Future of the Multilateral Trading System and the WTO,” The Future and the WTO: Confronting the Challenges (Ricardo Meléndez-Ortiz, Christophe Bellmann and Miguel Rodriguez Mendoza eds.) (July 2012) 55

Chapter 3 · The Basics of International Trade Law 61I. What Are the “Basics”? 61II. Most-Favored-Nation Treatment 61

A. GATT Article I: The Classic Expression of MFN 621. GATT Article I 622. What Does This Really Mean? MFN Scope and Interpretation 63Exercise: Spanish Treatment of Brazilian Coffee 63GATT Analytical Index, Article I — Most Favored Nation Treatment:

Spanish Treatment of Brazilian Coffee 64Belgian Family Allowances (Allocations Familiales), Panel Report

Adopted by the GATT CONTRACTING PARTIES on 7 November 1952 65

Exercise: Understanding MFN Obligations 66B. Fairness and MFN 66

Exercise: Fairness and MFN 66C. Non-Application 67D. Case Study: Russia: Non-Application, MFN and the Jackson-Vanik

Amendment 68William H. Cooper, The Jackson-Vanik Amendment and Candidate

Countries for WTO Accession: Issues for Congress(January 4, 2013) 69

Exercise: Russian NTR Status and WTO Accession 71William H. Cooper, Permanent Normal Trade Relations (PNTR)

Status for Russia and U.S.-Russian Economic Ties (December 17, 2012) 72

Exercise: What Happened Next? 77E. MFN in Contracts and Litigation 77

1. Most-Favored-Nation Contract Provisions (MFN) 77Exercise: MFN Clauses 782. MFN Clauses in Settlement Agreements 78The State of Florida, et al., v. The American Tobacco Company, et al.,

Settlement Agreement (1997) 78Charles E. Reynolds, II, Most Favored Nation Clauses — “The

Ultimate Double Edged Sword” (September 2006) 80Exercise: MFN Wrap Up 81

III. National Treatment 81A. The GATT Article III Obligation 81

1. GATT Article III 812. GATT Article III(2): Internal Taxes and Like Products 82Exercise: Japanese Alcoholic Beverages 83WTO Appellate Body Report, Japan — Taxes on Alcoholic Beverages

(October 4, 1996) 84Exercise: National Treatment from a Broader Perspective 893. What about National Treatment and Culture? 89Exercise: Split Run Magazines 91

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4. GATT Article III(4): Non-Fiscal Measures 91Exercise: Canadian Foreign Investment Review Act 91GATT Panel Report, Canada — Administration of the Foreign

Investment Review Act (July 25, 1983) 92Exercise: FIRA Undertakings 95Exercise: National Treatment and FIRA, The Bigger Picture 95

B. National Treatment in Other Contexts 96IV. Tariffs, Non-Tariff Barriers and Quotas 96

A. Tariffs 961. Types of Tariffs 96Exercise: Tariffs 972. Bound Tariff Rates 973. Actual Tariff Rates 98

B. Non-Tariff Barriers (NTBs) and Quotas 991. Non-Tariff Barriers 99Exercise: Non-Tariff Barriers 99Exercise: Which NTBs Should Be Permitted? 1002. GATT Article XI: Quotas 100Exercise: Quotas, Tariffs and Tariff-Rate Quotas 1013. U.S. Sugar Tariff-Rate Quotas 101United States Department of Agriculture Foreign Agricultural

Service, FACT SHEET: U.S. Sugar Program (December 2008) 102U.S. Department of Agriculture, Office of the Secretary, USDA

Reassigns Domestic Cane Sugar Allotments and Increases the Fiscal Year 2011 Raw Sugar Tariff-Rate Quota (April 12, 2011) 103

Exercise: Sugar 104V. Exceptions and Other Derogations 104

A. National Security 104WTO/GATT Analytical Index, Article XXI: Security Exceptions 105

B. General Exceptions and Related Agreements 1071. The GATT General Exceptions 1072. Standards — Technical Barriers to Trade 108Exercise: Voluntary or Mandatory? 109The WTO, Technical Information on Technical Barriers to Trade 1093. Sanitary and Phytosanitary Measures 115The WTO, Agreement on Sanitary and Phytosanitary Measures 115WTO Agreement on the Application of Sanitary and Phytosanitary

Measures 115Exercise: Trade and Environment 116Exercise: The Bigger Picture for Exceptions 116

Annex A: Trade Functions in the United States 117Introduction: Who Is in Charge? 117I. Congress 117II. The Executive Branch 118

A. Office of the U.S. Trade Representative (USTR) 118B. Department of Commerce (DOC) 118C. Homeland Security: U.S. Customs and Border Protection (CBP) 119D. U.S. International Trade Commission (ITC) 119

III. The Judiciary 119Exercise: U.S. Trade Policy Actors 120

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Chapter 4 · The International Monetary System 121I. Introduction 121II. Foreign Exchange Rates 121

A. What Are Foreign Exchange Rates? 121Example 121Example: Exchange Rates 122Exercise: Fixed and Floating Exchange Rates 122

B. Exchange Rate History 123Martin A. Weiss, International Monetary Fund: Background

and Issues for Congress (March 21, 2013) 125 Balance- of-Payments Basics 126Michael D. Bordo, “The Bretton Woods International Monetary

System: An Historical Overview,” A Retrospective on the Bretton Woods System: Lessons for International Monetary Reform(Michael D. Bordo and Barry Eichengreen, eds.) (1993) 128

Exercise: U.S. Dollar Exchange Rates 132Europa, “Towards a Single Currency: A Brief History of EMU,”

Summaries of EU Legislation, Economic and Monetary Affairs, Practical Aspects of Introducing the Euro (2011) 133

Exercise: Euro or No Euro? 136C. Exchange Rate Changes 136

1. How Are Exchange Rates Set? 136Example: The Mexican Peso 137Exercise: Exchange Rate Risk Drafting Exercise 1372. How Do Exchange Rates Change? Depreciation, Appreciation,

Devaluation and Revaluation 138Federal Reserve Bank of New York, Fedpoint: Currency Devaluation

and Revaluation 1383. Arbitrage 140Exercise: How Do Exchange Rates Impact Business Decisions? 1414. Exchange Rates and Trade 141Example: Levi’s in Brazil 141Exercise: Strong and Weak Currencies 142

D. Case Study — Is China a Currency Manipulator? 142Wayne M. Morrison and Marc Labonte, China’s Currency Policy:

An Analysis of the Economic Issues (December 19, 2011) 143Exercise: China’s Currency “Manipulation” 149

III. Balance of Payments 149Federal Reserve Bank of New York, FedPoint: Balance of Payments

(May 2009) 150Exercise: Peterstan’s Balance of Payments 151

IV. What Next? 153Douglas A. Irwin, “Espirit de Currency,” Finance & Development

(June 2011) 153Exercise: Exchange Rates, Balance of Trade and Balance of Payments 157

Chapter 5 · GATT/WTO Dispute Settlement 159I. How Do Nations Settle Trade Disputes? 159

A. Sovereign Actors 159B. Mechanisms and Venues 159

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II. GATT/WTO Dispute Settlement 160A. The GATT System 160

1. GATT Articles XXII and XXIII: Consensus and Compliance 160Exercise: Parsing the GATT Agreement 161Exercise: Consensus- Based Dispute Settlement 1622. GATT Disputes 162 Ernst- Ulrich Petersmann, The GATT/WTO Dispute Settlement

System: International Law, International Organizations, and Dispute Settlement (1997) 163

Exercise: Cherryvale — USE GATT Dispute 165B. The WTO Dispute Settlement Understanding (DSU) 166

1. Overview 166World Trade Organization Understanding on Rules and Procedures

Governing the Settlement of Disputes 1662. Issues and Goals 167Exercise: Identify the Sections That Address the Weaknesses 1683. The DSU Text 168Exercise: Cherryvale Seeks a Remedy Using the DSU 179

III. Case Study: The “Shrimp Turtle” Dispute 179A. The General Exceptions 179

Exercise: GATT Article XX(g) Purpose and Limits 180B. The Dispute 180

World Trade Organization, United States — Import Prohibition of Certain Shrimp and Shrimp Products 180

WTO Appellate Body Report, United States — Import Prohibition of Certain Shrimp and Shrimp Products (issued October 12, 1998) 181

Exercise: How Long Does a Dispute Settlement Action Take? 184C. Implementation 185

World Trade Organization, United States — Shrimp: Implementation Phase (Article 21.5) 185

WTO Appellate Body Report, United States — Import Prohibition of Certain Shrimp and Shrimp Products (Recourse to Article 21.5 by Malaysia) (October 22, 2001) 186

Exercise: Evaluating the Dispute Settlement Process 188

Chapter 6 · Regional Trading Arrangements 189I. The Nature and Purpose of Regional Trading Arrangements 189

World Trade Organization, Regional Trade Agreements: Facts and Figures, How Many Regional Trade Agreements Have Been Notified to the WTO? 189

A. Types of Arrangements: Free Trade Agreements and Customs Unions 190B. The Role of Such Arrangements in the Multilateral Trading System 191

1. GATT Authorization 191Exercise: Parsing GATT Article XXIV 1922. Why Does the GATT Allow RTAs? 192

C. The Impact of RTAs 1931. Do RTAs Have a Positive or Negative Impact on Trade

Liberalization? 1932. Do RTAs Create or Divert Trade (and Jobs)? 193

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II. U.S. Regional Trading Arrangements 195A. With Whom Do We Have Them? 195

U.S. Department of Commerce, International Trade Administration, U.S. Merchandise Trade Balance 196

Exercise: What Do RTA Statistics Mean? 196Exercise: Picking FTA Partners 196

B. Typical FTA Provisions 1971. How Do FTAs Work? 197Vivien C. Jones and Michael F. Martin, International Trade: Rules

of Origin (January 5, 2012) 198Exercise: Preferential and Non- Preferential Rules of Origin 201U.S. Department of Homeland Security, Customs and Border

Protection, NAFTA: A Guide to Customs Procedures 203Exercise: What Is Duty- Free? 2052. FTA Dispute Settlement (the NAFTA Model) 2063. Substantive Sectors Covered 209Exercise: Which FTAs Include Labor and Environmental Provisions? 211Exercise: What Services Should Be Opened to Foreign Competition? 212

C. Why Do We Have RTAs and How Do We Assess Them? 212The Pew Research Center, Public Support for Increased Trade,

Except with South Korea and China: Fewer See Benefits from Free Trade Agreements (2010) 212

Exercise: Public Opinion of Free Trade Agreements 216III. The European Union 217

A. History 2171. 1945–1959: Cooperation Began in the Post- War Period 2172. 1960–1969: The EEC Countries Enjoyed Economic Growth 2183. 1970–1979: The EEC Expanded 2184. 1980–1989: A Decade of Change 2195. 1990–1999: Increasing Integration 2206. 2000–2009: Further Expansion 2217. 2010–Today: Financial Crisis Fallout 223

B. EU Structure and Institutions 2241. Institutions and Procedures 224Europa, How the EU Works: EU Institutions and Other Bodies 2242. Case Study: EU Accession: Albanian Candidacy 226Exercise: Parsing an EU Document 227European Commission, Commission Opinion on Albania’s

Application for Membership of the European Union (November 9, 2010) 227

Exercise: Albanian Accession 234

Chapter 7 · Trade in Services 235I. Services 235

A. Background: Trade in Services 235The World Trade Organization, The General Agreement on Trade

in Services: An Introduction (2006) 235B. What Is a Service? 237

The World Trade Organization, The General Agreement on Trade in Services: An Introduction (2006) 237

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C. How Do You Classify Services Trade? 238The World Trade Organization, The General Agreement on Trade

in Services: An Introduction (2006) 238Exercise: Modes of Supply 239Exercise: Which Services “Matter”? 240

II. GATS Obligations 240A. General Obligations 241

1. Overview of Obligations 241Uruguay Round Agreements Act Statement of Administrative Action,

The General Agreement on Trade in Services (1994) 2422. MFN and Exceptions to MFN 245

B. Specific Commitments 2471. Market Access and National Treatment 247Uruguay Round Agreements Act Statement of Administrative Action,

The General Agreement on Trade in Services (1994) 2472. Schedules of Commitments 248The World Trade Organization, GATS Training Module — Main

Building Blocks: Agreement, Annexes and Schedules: 2.5 Specific Commitments 248

3. How to Read a Schedule 249The World Trade Organization, GATS Training Module, Main

Building Blocks: Agreement, Annexes and Schedules: 2.6 How Schedules Are Structured 249

III. Case Study: Services and Dispute Settlement: GATS and the Internet Gambling Dispute 251A. The Background of the Dispute 251

Exercise: Try to Answer the Following Questions 251The World Trade Organization, WTO Dispute DS285: United States

— Measures Affecting the Cross- Border Supply of Gambling and Betting Services 252

B. The Appellate Body Report 256Exercise: Try to Answer the Following Questions 256The World Trade Organization, Report of the Appellate Body,

United States — Measures Affecting the Cross- Border Supply of Gambling and Betting Services (April 7, 2005) 256

Exercise: Who Won? 261C. Noncompliance and Retaliation 261

Exercise: Understanding Retaliation 262Exercise: The “Irish Gambling Association” 262

IV. Financial Services 263Marilyne Pereira Goncalves and Constantinos Stephanou, Financial

Services and Trade Agreements in Latin America and the Caribbean: An Overview (2007) 263

Research Exercise: China and Financial Services 267

Chapter 8 · Foreign Investment 269I. The Regulation and Assessment of Foreign Investment 269

A. What Is Foreign Investment? 269B. Foreign Direct Investment “Rules” 269

1. International Law 269

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Exercise: Venezuela 2712. WTO Investment Agreement: TRIMs 2723. Bilateral Investment Treaties 2724. Regional Trading Agreements 2735. National Measures 273

C. Home Country and Host Country Considerations 273Exercise: Developed or Developing? 274

D. FDI Flows 2741. Levels of Foreign Direct Investment 274World Bank Group, Investing Across Borders 2010: Indicators of

Foreign Direct Investment Regulation in 87 Economies (2010) 2752. Investment Considerations 276World Bank Group, Investing Across Borders 2010: Indicators of

Foreign Direct Investment Regulation in 87 Economies (2010) 276Exercise: Draft a Memorandum about Choosing a Host Country 277

E. Corporate Social Responsibility 277Exercise: Kings Apparel 278

II. Bilateral Investment Treaties 278A. Definition and Purpose of BITs 278

Office of the U.S. Trade Representative, Bilateral Investment Treaties 279B. The Model BIT 280

U.S. Department of State, Office of the Spokesperson, Fact Sheet, Model Bilateral Investment Treaty (April 20, 2012) 280

2012 U.S. Model Bilateral Investment Treaty 282Exercise: Finding Substantive Obligations in the 2012 Model BIT 297Exercise: Revise the 2012 Model BIT 298

III. Regional Trade Agreement Investment Provisions 298A. NAFTA Chapter 11 Substantive Requirements 298

1. NAFTA Chapter 11, Parts A and C Provisions 298Exercise: Think about the Following Questions 298NAFTA: Part Five: Investment, Services and Related Matters 299Exercise: Translate (Paraphrase) Chapter 11, Part A Obligations 304Exercise: Expropriation: Yes or No? 304

B. NAFTA Chapter 11 Investment Disputes 3051. NAFTA Chapter 11, Part B 305Exercise: Think about the Following Questions 305NAFTA: Part Five: Investment, Services and Related Matters 306Exercise: Can This Claim Proceed? 3102. Chapter 11 Controversy 3103. Chapter 11 Usage 311Exercise: Chapter 11 Policy 312

IV. Host Country Measures Relating to Foreign Investment 312A. Measures Restricting Foreign Investment 312

World Bank Group, Investment Climate Advisory Services, Investing Across Borders 2010: Indicators of Foreign Direct Investment Regulation in 87 Economies (2010) 313

Exercise: Developing Country Review of Foreign Investment 318World Bank Group, Investment Climate Advisory Services,

Investing Across Borders 2010: Indicators of Foreign Direct Investment Regulation in 87 Economies (2010) 318

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B. The Committee on Foreign Investment in the United States (CFIUS) 3191. How Does CFIUS Work? 319U.S. Department of the Treasury, The Committee on Foreign

Investment in the United States (CFIUS) 320James K. Jackson, The Exon- Florio National Security Test for

Foreign Investment (October 1, 2012) 322Exercise: CFIUS Provisions 3322. CFIUS Procedures 3333. What Happens If a Covered Transaction Is Not Reported?

The Dubai Ports World Transaction 334Exercise: Huawei Technologies Co. 3344. Case Study: Blocking Chinese Investment in a Wind Farm Project 335U.S. Department of the Treasury Press Release, Statement from the

Treasury Department on the President’s Decision Regarding Ralls Corporation (September 28, 2012) 335

Exercise: Wind Farms 337Annex A: Exon-Florio and Other CFIUS Provisions 337

Chapter 9 · Trade Remedies 353I. Introduction: Remedies for Foreign Trading Practices 353II. Unfair Trade Practices: Antidumping and Countervailing Duties 354

A. Introduction 354Exercise: Basic Questions 3541. Dumping 3552. Subsidies 3553. Injury 357Research Exercise: Softwood Lumber 3574. Policy Arguments: Equity or Protection? 357Thomas Klitgaard and Karen Schiele, Free versus Fair Trade: The

Dumping Issue (August 1998) 359Exercise: Understand the Policy Arguments 363

B. International Obligations 3631. WTO Agreements 363Exercise: GATT Articles VI and XVI Fill in the Blanks 365Exercise: Parsing the SCM Agreement 370

C. U.S. Measures 3701. Initiating Antidumping and Countervailing Duty Investigations 370Vivian C. Jones, Trade Remedies: A Primer (June 14, 2006) 3702. Imposing Antidumping Duties 373Exercise: Filing a Petition and Figuring the Dumping Margin 3733. Imposing Countervailing Duties 374Exercise: Imposing Countervailing Duties on Non-Market

Economies 3774. Injury 378U.S. International Trade Commission, Antidumping and

Countervailing Duty Handbook (13th ed. 2008) 3795. Domestic Like Product 381U.S. International Trade Commission, Antidumping and

Countervailing Duty Handbook (13th Ed. 2008) 382Exercise: Certain Orange Juice from Brazil 383

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6. Procedural Steps 384Exercise: Antidumping Procedure 385Exercise: Make a Flow Chart 3857. Appeal and Review 3858. Other U.S. Measures — Now Extinct 386

D. Regional Trade Agreements: NAFTA Binational Panels 387Exercise: Why Do We Have Binational Panels? 390Stephen J. Powell, Expanding the NAFTA Chapter 19 Dispute

Settlement System: A Way to Declaw Trade Remedy Laws in a Free Trade Area of the Americas? 390

Exercise: Thinking More Deeply about Binational Panels 397III. Other Remedies for Unfair Trade Practices 397

A. Section 301 3971. Background 397Exercise: Understanding the Section 301 Statute 3992. Overview 400U.S. House of Representatives, Committee on Ways and Means,

Overview and Compilation of U.S. Trade Statutes (2010) 4003. Procedure 4044. Remedies 4045. Super 301 405U.S. House of Representatives, Committee on Ways and Means,

Overview and Compilation of U.S. Trade Statutes (2010) 405Exercise: Super 301 4066. Section 301: Unilateralism and the WTO 406World Trade Organization, U.S. — Section 301 Trade Act (2012) 408Exercise: WTO Section 301 Panel Decision 409Exercise: China Currency 4097. Special 301 409U.S. House of Representatives, Committee on Ways and Means,

Overview and Compilation of U.S. Trade Statutes (2010) 409Exercise: Special 301 410

B. Section 337 410U.S. House of Representatives, Committee on Ways and Means,

Overview and Compilation of U.S. Trade Statutes (2010) 412Exercise: Section 337 Action 413

C. More Intellectual Property Remedies: Gray Market Goods/Parallel Imports 414

1. In the Trademark Context 414U.S. Department of Homeland Security, U.S. Customs and Border

Protection, What Every Member of the Trade Community Should Know About: CBP Enforcement of Intellectual Property Rights (August 2012) 414

2. In the Copyright Context 416Exercise: Gray Market Goods 419

IV. Remedies for Fair Trading Practices 419A. Safeguards/Escape Clause Actions 419

1. Introduction 4192. GATT/WTO Rules for Safeguards Relief 419

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The World Trade Organization, Safeguards: Emergency Protection from Imports 420

The World Trade Organization, Agreement on Safeguards 4223. U.S. Law: Section 201 Actions 425U.S. House of Representatives, Committee on Ways and Means,

Overview and Compilation of U.S. Trade Statutes (2010) 427U.S. International Trade Commission, Steel: Investigation

No. TA-201-73 (December 2001) 432Exercise: Reading Skills — The Steel Investigation 436Exercise: Safeguards, Steel and Politics 437

B. Section 406: Market Disruption by Imports from Communist Countries 437U.S. House of Representatives, Committee on Ways and Means,

Overview and Compilation of U.S. Trade Statutes (2010) 437C. Section 421 (China) 438

U.S. House of Representatives, Committee on Ways and Means, Overview and Compilation of U.S. Trade Statutes (2010) 440

Exercise: Section 421: Politics 442D. Trade Adjustment Assistance 443

U.S. Department of Labor, Trade Adjustment Assistance for Workers (2012) 443

U.S Department of Labor, Trade Adjustment Assistance Program: Getting Back to Work after a Trade Related Layoff 445

U.S. Government Accountability Office Report to Congressional Committees, Trade Adjustment Assistance: Commerce Program Has Helped Manufacturing and Services Firms, but Measures, Data, and Funding Formula Could Improve (September 2012) 447

Exercise: Trade Adjustment Assistance 448

Chapter 10 · Imports 449I. Introduction 449II. Entry and Inspection 450

A. Entry 450B. Inspection 451

III. Product Classification 451A. The Harmonized System 451

Exercise: Find the Correct Classification 454B. Tariff Classification Rules 455

U.S. Department of Homeland Security, Customs and Border Protection, What Every Member of the Trade Community Should Know About: Tariff Classification (May 2004) 455

C. Interpretation of the Harmonized System: General Rules of Interpretation 459

U.S. International Trade Commission, Harmonized Tariff Schedule of the United States, General Rules of Interpretation (2011 (Rev. 1)) 459

Exercise: Using the General Rules of Interpretation 460Exercise: Another Approach to Using the HTSUS and the General

Rules of Interpretation: Multiple Choice Practice 462IV. Country of Origin: “Where Is It From?” 465

A. Rules of Origin 465

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B. Country of Origin Marking 466Exercise: Country of Origin Marking 468Bestfoods (formerly known as CPC International, Inc.) v.

United States 468Exercise: Understanding Bestfoods 473

V. Appraisal/Valuation 473U.S. Department of Homeland Security, Customs and Border

Protection, What Every Member of the Trade Community Should Know About: Customs Value (July 2006) 473

Exercise: Valuation 478Exercise: Appraisal of Asparagus 484

VI. Liquidation 484Exercise: Find Importing Forms 485

Chapter 11 · Exports 487I. Introduction: Exports and Imports 487

A. Overlapping Regimes 487Exercise: Dual- Use Goods 488

B. International Export Control Arrangements 489II. U.S. Export Controls 490

A. The Export Administration Regulations 490Exercise: Parsing the EAR 493

B. The BIS Process 494U.S. Department of Commerce Bureau of Industry and Security,

Introduction to Commerce Department Export Controls (August 2010) 494

Exercise: Do You Need a License? 502III. U.S. Antiboycott Laws 502

A. Compliance with the Antiboycott Laws 502B. The Antiboycott Regulations 503C. Boycott Requests 510

U.S. Department of Commerce, Bureau of Industry and Security, Office of Antiboycott Compliance, Examples of Boycott Requests (2012) 510

Exercise: U.S. Antiboycott Requests and Regulations 517

Chapter 12 · Economic Sanctions 521I. Trade and Foreign Policy 521

A. Economic Sanctions — Ancient History 521B. U.S. Use of Sanctions 522

Amy Deen Westbrook, What’s in Your Portfolio? U.S. Investors Are Unknowingly Financing State Sponsors of Terrorism (2010) 522

C. International Law and Sanctions 523Exercise: Boycotts 524

II. U.S. Department of the Treasury Measures 525A. U.S. Department of the Treasury, Office of Foreign Assets Control 525

U.S. Department of the Treasury, Office of Foreign Assets Control: About 525

B. Overview of OFAC Regulations 5271. Who Is Subject to the Regulations? 527

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2. Who Is the Target of the Regulations? 5273. What Do the Regulations Prohibit (Without a License)? 527Exercise: The OFAC Regulations 528

III. Other Measures 528A. Additional Congressional Measures: Cuba and the Helms- Burton Act 528

Amy Deen Westbrook, What’s in Your Portfolio? U.S. Investors Are Unknowingly Financing State Sponsors of Terrorism (2010) 529

Research Exercise: Pulling Things Together — Helms- Burton and NAFTA 529

B. Blocking Statutes 530Exercise: Thinking Back to the U.S. Antiboyott Regulations 530

C. State and Local Measures 5301. The Limits of State Power: The Illinois Sudan Act 530National Foreign Trade Council, Inc. v. Giannoulias 530Exercise: Briefing a Case 539Exercise: Looking More Deeply at the Illinois Sudan Act Case 5392. Not So Limited After All? State Debarment and Divestment

Measures 539Iran Contracting Act of 2010 540Exercise: State Measures 541

IV. Case Study: Iran Sanctions: Maximum Pressure 542A. Introduction 542B. Direct Congressional Action: ISA, CISADA and More 542

Exercise: Understanding Iran Sanctions 542Kenneth Katzman, Iran Sanctions (January 10, 2013) 543

C. Ban on Trade and Investment in Iran: OFAC Regulations 554Exercise: Parsing the Iranian Transactions and Sanctions

Regulations (ITSR) 554The Iranian Transactions and Sanctions Regulations 555Kenneth Katzman, Iran Sanctions (January 10, 2013) 564Exercise: Apply the Iranian Transactions and Sanctions Regulations 566

D. Financial Sanctions Against Iran 566Exercise: Parsing the Iranian Financial Sanctions Regulations 571Kenneth Katzman, Iran Sanctions (January 10, 2013) 571

E. Other U.S. Sanctions on Iran 5741. The Iranian Assets Control Regulations (31 C.F.R. Part 535) 574U.S. Department of the Treasury, Office of Foreign Assets Control,

An Overview of O.F.A.C. Regulations Involving Sanctions against Iran 574

2. The Iranian Human Rights Abuses Sanctions Regulations (31 C.F.R. Part 562) 575

Kenneth Katzman, Iran Sanctions (January 10, 2013) 575F. Do Sanctions Have an Effect? 577

Kenneth Katzman, Iran Sanctions (January 10, 2013) 577Exercise: U.S. Sanctions on Iran 580

V. Economic Sanctions: Effective or a Waste? 581Exercise: The Policy of Sanctions 581

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Chapter 13 · International Sale of Goods Transactions 583I. Why Are International Sales More Complicated? 583II. Commercial Terms: INCOTERMS® 2010 584

Exercise: INCOTERMS®— Explain the Concept 586Exercise: Drafting with INCOTERMS® 587Exercise: How Do You Use INCOTERMS®? 587

III. The UN Convention on Contracts for the International Sale of Goods (CISG) 588A. What Is the CISG? 588

Exercise: CISG Contracting States 589B. Scope and Key Provisions 590

United Nations Convention on Contracts for the International Sale of Goods 591

Exercise: Does the CISG Apply? 593UN Convention on Contracts for the International Sale of Goods 594Exercise: Formation under the CISG 596UN Convention on Contracts for the International Sale of Goods 596Exercise: CISG Sale of Goods Provisions 600

IV. Documentary Sales Transactions 601A. The Sales Contract 602

Exercise: The Sales Contract 602Sales and Purchase Agreement 602Exercise: Making Comments and Representing Your Client 607Exercise: Moving to the Next Step 608

B. The Bill of Lading 609Exercise: Fill Out a Bill of Lading 611

C. The Letter of Credit 612

Chapter 14 · Letters of Credit 613I. Payment in International Commercial Transactions 613

U.S. Department of Commerce, International Trade Administration, International Finance (2009) 613

Exercise: Common Sense: Payment in International Commercial Transactions 615

II. Functions and Characteristics of Letters of Credit 615A. Documentary Letters of Credit (L/Cs) 615

U.S. Department of Commerce, International Trade Administration, Trade Finance Guide (2012) 616

B. Letter of Credit Terms 618Exercise: Note- Taking and Letter of Credit Vocabulary 619

C. Letter of Credit Mechanics: From Procurement to Payment 6201. Obtaining the Letter of Credit 6202. Letter of Credit Payment 620Unconfirmed Letter of Credit Transaction 622Confirmed Letter of Credit Transaction 623Exercise: Review a Letter of Credit 623

III. The Laws Governing Letters of Credit 623A. Sources of Law 623B. Fundamental Rules of Letter of Credit Law: Strict Compliance and

Independence 625

CONTENTS xix

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1. Strict Compliance 625John W. Head, How Letters of Credit Operate in International

Commercial Transactions: An Introduction to the UCP (March 2008) 625

2. The Independence Principle 632John W. Head, How Letters of Credit Operate in International

Commercial Transactions: An Introduction to the UCP (March 2008) 634

Exercise: Draft Your Own Commercial Letter of Credit 635IV. Standby Letters of Credit 637

Exercise: Think about the Big Picture 637Exercise: Create Your Own Flowchart 638Exercise: Draft a Standby Letter of Credit 638

Chapter 15 · Anticorruption 641I. Introduction 641II. U.S. Foreign Corrupt Practices Act 642

A. Background and Basics 642Amy Deen Westbrook, Enthusiastic Enforcement, Informal

Legislation: The Unruly Expansion of the Foreign Corrupt Practices Act (2011) 642

B. The FCPA Anti- Bribery Provisions 646Exercise: Taking Notes and Reading the Statute 649

C. FCPA Enforcement 649D. FCPA Interpretation 650

Amy Deen Westbrook, Enthusiastic Enforcement, Informal Legislation: The Unruly Expansion of the Foreign Corrupt Practices Act (2011) 650

1. Who Is a Foreign Official? 651Amy Deen Westbrook, Enthusiastic Enforcement, Informal


U.S. Department of Justice and the U.S. Securities and Exchange Commission, A Resource Guide to the U.S. Foreign Corrupt Practices Act (November 14, 2012) 653

Exercise: Foreign Official 6562. What Does It Mean to Offer or Pay Anything of Value? 656Amy Deen Westbrook, Enthusiastic Enforcement, Informal


3. What Is the Business Purpose Test? 657Amy Deen Westbrook, Enthusiastic Enforcement, Informal


4. How Are the Exceptions and Affirmative Defenses Used? 658Amy Deen Westbrook, Enthusiastic Enforcement, Informal


5. What Is Knowledge? 660

xx CONTENTS

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Amy Deen Westbrook, Enthusiastic Enforcement, Informal Legislation: The Unruly Expansion of the Foreign Corrupt Practices Act (2011) 660

Exercise: Knowledge 661U.S. Department of Justice and the U.S. Securities and Exchange

Commission, A Resource Guide to the U.S. Foreign Corrupt Practices Act (November 14, 2012) 662

United States v. Bourke 663Exercise: Knowledge and Conscious Avoidance 670

E. Drafting to Take FCPA Risks into Account 670Exercise: Law Texts Unlimited Contracts with a Distributor 671Exercise: Agency Agreement Provisions 674U.S. Department of Justice and the U.S. Securities and Exchange

Commission, A Resource Guide to the U.S. Foreign Corrupt Practices Act (November 14, 2012) 675

Exercise: Merger/Acquisition Agreements and FCPA Liability 675F. FCPA Compliance Programs 676

U.S. Department of Justice and the U.S. Securities and Exchange Commission, A Resource Guide to the U.S. Foreign Corrupt Practices Act (November 14, 2012) 676

Exercise: Compliance Program 680III. International Measures 680

A. International Developments 680Amy Deen Westbrook, Enthusiastic Enforcement, Informal


B. The OECD Anti- Bribery Convention 681Exercise: What Countries Have Implemented the OECD Convention? 682The Organization for Economic Cooperation and Development,

The Convention on Combating Bribery of Foreign Public Officials in International Business Transactions 682

Exercise: OECD Convention 683C. Other International Measures 683

1. The United Nations 683United Nations, Convention against Corruption: Convention

Highlights 6832. Regional Agreements 6853. The World Bank 686The World Bank, Strengthening Governance: Tackling Corruption:

The World Bank Group’s Updated Strategy and Implementation Plan (March 6, 2012) 686

4. Private and Non- Governmental Organizations 688Trace International, Anti- Bribery Compliance Solutions, Global

Enforcement Report 2011 (2011) 689IV. Other National Measures 690

A. U.K. Bribery Act 690UK Ministry of Justice, The Bribery Act of 2010: Quick Start Guide 691

B. BRIC Countries 691

CONTENTS xxi

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Frederick T. Stocker, Anti- Corruption Developments in the BRIC Countries: A Manufacturer’s Alliance for Productivity and Innovation Series (April 2012) 692

Exercise: Basic Questions about BRICs 700

Chapter 16 · Transactional Practice 701I. Introduction 701II. Sales Agency Agreement 701

A. Introduction 701B. Case Study: The United Properties Sales Agency Agreement 703

Exercise: Understanding the Sales Agency Agreement 706III. Marketing and Distribution Agreements 707

A. Introduction 707B. Case Study: The NannyCam Agreement: Understanding and Negotiating 707

Exercise: What Happens If . . . 713Exercise: Negotiating the Distribution Agreement 714

C. Case Study: Southside, Inc.: Understanding and Drafting 714Exercise: Understanding the Southside Agreement 718Exercise: The Three “C”s: Drafting the Clauses Missing from the

Southside Agreement 718IV. Patent License Agreements 719

A. Introduction 719B. Case Study: Custom Antibody Labs, Inc: Working with Documents

You May Not Understand 719Exercise: Custom Antibody Labs, Inc.: Working with Documents

You May Not Understand 727Exercise: Custom Antibody Labs, Inc.: Understanding Key Terms 728

V. Franchise Agreements 728A. Introduction 728B. Case Study: The Clean Car Crew Franchise Agreement 729

Exercise: Parsing a Franchise Agreement 743Exercise: “What happens if . . . ?” Questions about the Clean Car

Crew Agreement 743VI. International Investment Transactions: Joint Venture 743

A. Introduction 743B. Case Study: The Star — LEI Joint Venture 744

Exercise: The Two- Minute Summary 754Exercise: Parsing the Joint Venture Agreement 754

Index 755

xxii CONTENTS

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Belgian Family Allowances (Allocations Fa-miliales), 65

Bestfoods (formerly known as CPC Interna-tional, Inc.) v. United States, 468

Canada — Administration of the foreignInvestment Review Act, 92

Japan — Taxes on Alcoholic Beverages, 84

National Foreign Trade Council, Inc. v. Gi-annoulias, 530

United States — Import Prohibitions ofCertain Shrimp and Shrimp Products,181

United States — Import Prohibition of Cer-tain Shrimp and Shrimp Products (Re-course to Article 21.5 by Malaysia),186

United States — Measures Affecting theCross-Border Supply of Gambling andBetting Services, 256

United States v. Bourke, 663

xxiii

Table of Cases

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xxv

Series Editor’s Preface

Welcome to a new type of casebook. Designed by leading experts in law school teachingand learning, Context and Practice casebooks assist law professors and their students towork together to learn, minimize stress, and prepare for the rigors and joys of practicinglaw. Student learning and preparation for law practice are the guiding ethics of these books.

Why would we depart from the tried and true? Why have we abandoned the legal educationmodel by which we were trained? Because legal education can and must improve.

In Spring 2007, the Carnegie Foundation published Educating Lawyers: Preparation forthe Practice of Law and the Clinical Legal Education Association published Best Practicesfor Legal Education. Both works reflect in-depth efforts to assess the effectiveness of modernlegal education, and both conclude that legal education, as presently practiced, falls quiteshort of what it can and should be. Both works criticize law professors’ rigid adherence toa single teaching technique, the inadequacies of law school assessment mechanisms, andthe dearth of law school instruction aimed at teaching law practice skills and inculcatingprofessional values. Finally, the authors of both books express concern that legal educationmay be harming law students. Recent studies show that law students, in comparison to allother graduate students, have the highest levels of depression, anxiety and substance abuse.

The problems with traditional law school instruction begin with the textbooks lawteachers use. Law professors cannot implement Educating Lawyers and Best Practices usingtexts designed for the traditional model of legal education. Moreover, even though ourunderstanding of how people learn has grown exponentially in the past 100 years, no lawschool text to date even purports to have been designed with educational research in mind.

The Context and Practice Series is an effort to offer a genuine alternative. Groundedin learning theory and instructional design and written with Educating Lawyers and BestPractices in mind, Context and Practice casebooks make it easy for law professors tochange.

I welcome reactions, criticisms, and suggestions; my e-mail address is michael. schwartz@washburn. edu. Knowing the author(s) of these books, I know they, too, would appreciateyour input; we share a common commitment to student learning. In fact, students, ifyour professor cares enough about your learning to have adopted this book, I bet s/hewould welcome your input, too!

Professor Michael Hunter Schwartz, Series Designer and EditorCo-Director, Institute for Law Teaching and Learning

Associate Dean for Faculty and Academic Development

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xxvii

Preface and Acknowledgments

The Goals of the Casebook

International Business Transactions is designed to do two things:

• introduce you to global economic relations (the context of international businesstransactions), and

• teach you how to organize and execute the transactions themselves (the practiceof international business transactions).

The book does not assume any prior knowledge of business or international law, andso concentrates on the basics. With the curricular and extracurricular demands of lawschool, it is possible that you will not have an opportunity to take many business or in-ternational law courses. In recognition of that, the book is careful with your time,explaining the basics but leaving in- depth treatment of some topics (for example,domestic intellectual property laws and international litigation) for more specializedcourses.

International Business Transactions is divided into four parts.

• Part I: The International Context starts with the big picture. Chapters 1– 4provide an introduction to globalization, and to the history and institutions ofinternational economic relations including the General Agreement on Tariffsand Trade (the GATT) and its successor, the World Trade Organization (WTO).These chapters also explain the basic concepts of international trade in goodsand monetary systems.

• Part II: The Legal Context of International Trade and Business looks more closelyat the public international legal structures developed to govern internationalbusiness relations. Chapters 5– 8 cover the settlement of trade disputes under theWTO system, regional trading arrangements including the North American FreeTrade Agreement and the European Union, the development of international reg-ulation of trade in services, and foreign direct investment.

• Part III: Trade Practice shifts the focus to what trade lawyers do. Chapters 9–12look at trade practice, a largely regulatory practice in which lawyers assist theirclients with the formalities, restrictions and requirements of moving goods acrossborders. This part begins with a discussion of trade remedies that a client mayseek for foreign trading practices or administrative measures. Export and import(customs) regulation follows, including a discussion of economic sanctions orembargoes that may impose restrictions on certain international businesstransactions.

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xxviii PREFACE AND ACKNOWLEDGMENTS

• Part IV: International Commercial Transactions covers international commercialpractice. Chapters 13– 16 set out the basics of documentary sales transactions andletters of credit, including a discussion of the increasing impact of anti- corruptionmeasures such as the U.S. Foreign Corrupt Practices Act. The last chapter of thebook is composed completely of documents for a variety of international businesstransactions, and provides an opportunity for you to practice the skills you havedeveloped in the rest of the course.

At the end of the course, you should have a working knowledge of international tradelaw and many of the skills needed to represent your clients in that context, as well as ininternational sales and investment transactions. You should be prepared to practice, andunderstand the environment in which you are practicing.

Acknowledgments

I sincerely appreciate the opportunity provided by Carolina Academic Press, and theContext and Practice Series Editor, Mike Schwartz, to write this casebook. I am alsograteful for the support of Washburn University School of Law. My interest in InternationalBusiness Transactions dates back to my own law school days, and so any work in thatarea owes a great deal to the inspiration of the late Professor Abram Chayes and ProfessorAntonia Handler Chayes. Several colleagues were helpful to my writing process, includingJack Schlegel and Tricia Judd. Thank you also to my research assistants: Becca Sanders,Benny Armstrong, Stan Jones, Juli Burton and, with the lion’s share of the work, JoshMortensen.

I am also profoundly grateful to my husband, Bert Westbrook, and our children,Thomas, Sophie and Peter, for their help and patience while I was writing the book.Finally, I am grateful to my mother, Pat Upchurch, who has always wanted me to write(some kind of) a book.

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